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What is a Perquisite?

The term perquisite is defined to signify some benefit in addition to the amount that may be legally due by way of contract of services rendered. Section 17(2) gives an inclusive definition of perquisites. As per the Terms of Section 17(2), Perquisites Includes: The value of rent free accommodation provided to the assessee by his employer The value of concession in matter of rent respecting any accommodation provided to assessee by his employer The value of any benefit or amenity granted or provided free of cost or at concessional rate to the employee -directors and specified employees, with some exceptions Sums paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee Sums payable by the employer to effect an assurance on the life of the assessee-employee or to effect a contract for an annuity Value of any fringe benefit or amenity (excluding the fringe benefits chargeable to tax in the hands of the employer, known as Fringe Benefit Tax) as may be prescribed What do you mean by Benefits and Amenity? Benefits: It can be taken as profit, advantage, reward, or subsidy. For example - provision of personal car, etc. Amenity: It covers any personal conveniences or facilities granted or provided to the employee by an employer. For example - provision of domestic servants. Who is Specified Employee? Following employees are specific employees: Director-employee OR An employee having 20% or more of voting power in the employer- company OR An employee who is drawing salary in excess of Rs.50,000.00 p.a. and does not fall under the above two categories

How to compute salary of Specified Employee? Following are excluded for computing the limit of Rs.50,000.00:

Non-monetary benefits Deduction on account of professional tax Exempt entertainment allowance Non-taxable allowance

Where salary is received from more than one employer, the aggregate salary from these employers will have to be taken for the purpose of determining the aforesaid monetary ceiling. What is the basis of valuation for Perquisites? Perquisites can be considered as benefit to the employee and hence taxable in the hands of specified employees only. Perquisites can be valued as follow: Personal Accident Insurance: If employee takes policy and employer pays the insurance premiums, then it will be taxable as perquisite in case of specified employees. But where employer takes such policy in the name of the employee in order to protect the interests of the employer, then it is not a perquisite. Foreign tour expenses of relatives: Taxability under this clause is dependent on the circumstances of the case Life insurance/annuity payments: It is considered as perquisite; any sum payable by the employer directly or through a fund, for the premium of Life Insurance policey of the employee is taxable as perquisite. Stock options: It is not considered as perquisite as per the provison in sub-clause (iii) of Section 17(2), of Income Tax Act. Transport facility between place of work and residence: It is not considered as perquisite when the transport facility is provided by an employer to employees for limited purpose of enabling the employees to commute between their residence and office Discharge of employees obligation by employer:

It is considered as perquisite; any sum paid by the employer in respect of any obligation of employee, it is taxable as perquisites in case of specified employees. What is guideline related to new rule 3? Perquisites may be provided directly or indirectly Perquisites need not necessarily be non-monetary Defines household members to include: Spouse(s) Children and their spouses Parents Servant Rent-free/concessional accommodation provided to employees Provision of domestic servants Provision of gas/electricity/water Provision of free or concessional educational facilities Provision of interest-free or concessional loan Use of employers movable assets Transfer of employers movable assets Waht are the provision regarding Rent Free House Facility for Government Employee? Where accommodation is provided by Union or State Government body or undertaking under the control of such Government. The value of perquisite calculated according to the specific condition thereon. How to calculate value of perquisite Rent Free House Facility? If the accommodation is unfurnished - license fee determined by the Government If the accommodation is furnished - the value as determined above plus 10% per annum, of the original cost of furniture; or if such furniture is brought on hire - actual hire charges paid by the employer How to calculate value of perquisite for unfurnished Rent Free Accomodation for Private employee? Where unfurnished accommodation is provided to the private sector employees .

If the accommodation is owned by employer: 20% of salary, where the accommodation is situated in cities where population exceeds 4 lacs as per census of 1991 15% of salary, where the accommodation is situated in other cities Note: - The above value shall be reduced from the rent, if any, actually paid by the employee. If the accommodation is taken on lease or rent by the employer: Actual amount of lease or rental paid or payable by the employer OR 20% of salary whichever is lower Note: -The above value shall be reduced from the rent, if any, actually paid by the Employee How to calculate value of perquisite for furnished Rent Free Accomodation? Where furnished accommodation is provided to the private sector employees: The valuation shall be summation of: Value of unfurnished accommodation as calculated earlier Value of furnishing which will be calculated as: 10% of original cost of furniture where such furnishing are owned by the employer Actual hire charges paid by the employer where such furnishing are hired by the employer Note: -The above value shall be reduced from the rent, if any, actually paid by the Employee What is the provision for Domestic Servants? The value of benefit to the employee or any other member of his household resulting from the provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant, shall be actual cost to the employer.

The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services

What are the provision for free supply of gas, electric energy & water? value of perquisite shall be: Where such facility is purchased by the employer - sum paid by the employer on account of such facility Where source of such service is owned by the employer - manufacturing cost incurred by the employer. However, if the employee is paying any amount on account of such facility, then amount so paid will be deducted from the value of perquisite How we calculte the value of perquisite for Education Facility? The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his house hold shall be determined as the sum equal to the amount of expenditure incurred by the employer in this behalf; Where the educational institution is owned and maintained by the employer, the value of the perquisite shall be determined with reference to the cost of such education in a similar institution in or nearby locality and in such cases: The perquisite shall not be chargeable to tax if the value of perquisite does not exceed Rs.1000.00 Where the facility is provided in some other institution, the value of perquisite is required to be determined at the amount of expenditure incurred by the employer in that behalf; Where any amount is paid or recovered from the employer on that account, the value of perquisite shall be reduced by the amount so recovered.

What is the deduction related to Loans taken for Higher Education? Deduction is admissible to an Individual assessee, in respect to loans taken by him for higher education subject to following conditions:

The assessee must have taken a loan for the purpose of his higher education Such loan must have been taken by him from any financial institution or any approved charitable institution The assessee must have paid the interest on loan out of his taxable income during the previous year. If the payment has been made out of non-taxable income i.e. agricultural income, no deduction is allowed. For this purpose: Approved charitable institution means an institute established for charitable purpose and notified by government under section 10(23C) Financial institution means a banking company, or other notified financial institution Higher education means full time studies for any graduate or post graduate course in the following disciplin Engineering Medicine Management Applied Sciences Pure Sciences Art & Science

This has reference to Section 80E of Income Tax Act. What is the quantum of deduction of loan taken for Higher Education? The entire amount of interest is allowed as deduction subject to the following conditions: The deduction shall be allowed in the initial assessment year in which the assessee starts paying the loan and 7 immediately succeeding assessment years or the period until the interest is paid in full, which ever is earlier No deduction is available in respect to repayment of principal amount How we calculate value of perquisite for Medical Facilities? The value of benefit shall be Nil: If medical treatment is provided in hospital

Maintained by employer Maintained or approved by any government or local authority In respect to prescribed diseases or ailments

In respect to mediclaim paid by the employer under approved scheme in Section 80D

Any sum paid by employer on treatment (other then described earlier) subject to maximum limit of Rs.15,000.00 Any expenditure incurred by employer on:

Medical treatment of employee or family member outside India Travel and stay abroad for medical treatment along with one attendant

The expenditure is exempted to the extent permitted by Reserve Bank Of India Gross total income of the employee does not exceed Rs. 2 Lacs What is the deduction related to Medical Insurance Premium? Premium paid by way of medical insurance policy falling under the scheme of any approved Insurer is deductible up to Rs.10000.00. However, where the assessee is: Individual: Any sum paid to keep in force the policy on health of assessee, his spouse, or dependent parents or children is also allowed as deduction. HUF: Any sum paid to keep in force insurance on health of any family member is allowed as deduction. However, senior citizens aged 65 years or more are allowed an enhanced deduction of Rs.15000.00. This has reference to Section 80D of Income Tax Act. What are the deductions related to Medical Treatment?

Dependents with Physical Disability:


Where the assessee is the resident Individual or HUF, during the previous year: Incurred any expenditure for the medical treatment, training and rehabilitation, being persons with disability Paid or deposited any amount under a scheme framed in this behalf by: LIC Any other insurer Administrator The specified company For the maintenance of a dependent, being a person with disability is allowed the following deduction: In case of persons with disability - Rs.50000.00 In case of persons with severe disability - Rs.75000.00

However, if the dependent predeceases the assessee, any amount received by the assessee from the insurer (subject to maximum of the amount deposited to the insurer) shall be deemed to be the income of the assessee in the year of receipt. This has reference to Section 80DD of Income Tax Act. Treatment of Specified Diseases: It provides that where an assessee who is a resident of India has, during the previous year, actually paid any amount for the medical treatment of such disease or ailment as may be specified in the rules made in this behalf by the board: For himself or a dependent, in case the assessee is an Individual For any member of a HUF, in case the assessee is a HUF The assessee shall be allowed a deduction of the amount actually paid or a sum of Rs.40000.00 (Rs.60000.00 for senior citizens), whichever is less. This has reference to Section 80DDB of Income Tax Act. What are the specified diseases or ailment respect to Sec.80DDB? For this purpose the following diseases have been specified: Neurological Diseases Cancer Full-blown Acquired Immune-Deficiency Syndrome (AIDS) Chronic Renal Failure Hemophilia Thalassaemia